Ridley Corporation Limited (RIC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the 32nd Annual General Meeting of Ridley Corporation Limited. My name is Mick McMahon, and I'm Chair of Ridley Corporation end of this meeting. I declare the meeting open and confirm that we have a quorum. I'm delighted to be able to extend a warm welcome to all of our shareholders to this, our first virtual meeting and my first meeting as Chair. I would like to take the opportunity to introduce your directors and company secretary to you. Managing Director, Quinton Hildebrand; Directors, Patria Mann, Rob van Barneveld, David Lord, Rhys Jones and Ejnar Knudsen. I also welcome CFO and Company Secretary, Alan Boyd; and KPMG partner, Chris Sargent, representing our external auditors. There are no apologies for this meeting. The minutes of the last AGM held on 25th of November 2019 have been signed by the Chair of that meeting, Gary Weiss. The company secretary has a copy of the minutes, which is available for inspection by any member. Copies of the notice of meeting have been made available to all members and will be taken as read. We will begin the meeting with a short presentation, then go through the formal proceedings, which this year, comprise 8 resolutions, all of which will be decided by poll. The results of the poll will be announced through the ASX platform and on the Ridley website after the conclusion of the meeting. Voting on the resolutions is now open, and you can vote at any time until I declare the voting closed. You can also change your vote at any time throughout the proceedings. I will give you a clear prompt later in the meeting to warn of the close in voting. To vote, click the voting icon in the navigation bar of your screen to display the resolutions. Once you click on this, the resolutions will appear on your screen, along with the for, against and abstain voting options. Simply select one of these options to cast your vote. When voting is closed, your final voting selection will be recorded. Please note that only shareholders, proxy holders or authorized shareholder representatives may vote. Any directed proxies given to you by a shareholder will automatically be cast as directed when the poll is closed. After introducing each item, I will take questions. If you are attending online, you can start submitting questions now by clicking the question icon. Please reference your questions to the relevant item of business. We will endeavor to address your questions later in the proceedings. If you have any difficulties voting or submitting questions, please consult the user guide, which can be accessed within the Lumi online meeting platform or within our notice of meeting. For the formalities of the meeting, each resolution and the valid proxy details in respect of that resolution will appear on the screen. As Chairman, I intend to vote any proxies in my favor in support of all motions put, including any undirected proxies in relation to items 2, 7 and 8, which relate to remuneration issues. I will now hand over to our Managing Director, Quinton Hildebrand, to provide a brief business update. Quinton?

Thank you, Mick. Good morning, shareholders and guests. Thank you for your attendance today. Having joined Ridley Corporation towards the end of August 2019, the year ended 30th of June 2020 was my first at the company. And with the support of the Board and the collaboration of my colleagues in the business, we've prioritized resetting the business for growth. Our vision for Ridley is to grow its position as the largest animal feeds business in the country. When I began engaging with customers to understand how we could grow the business, it became apparent that we needed to become more customer-oriented and more proactive in creating value up and down the supply chain. The organizational restructure announced in November was a fundamental step in getting the business aligned with the objectives of our customers and giving us the best opportunity to start to win business and increase the volumes produced through our underutilized capacity. The new structure also brings a clearer focus to merchandising function, which is responsible for the procurement of over $700 million in raw materials each year and the specialized capability of our nutrition function. Both of which we consider to be areas of competitive advantage for Ridley in the Australian market. Having redefined the organizational structure, we then implemented a secondary round of simplification within the business units, ultimately, during the course of the year, Ridley reduced its employee complement by 10% on a like-for-like basis. What has been incredibly pleasing is the way in which our employees have responded, not only adapting to delivering more with less and navigating through the challenges of COVID-19, but at the same time, delivering the best safety performance on record and increasing our underlying operational earnings over this period. I wish to commend all Ridley employees for the delivery of the results in this challenging year. FY '20 has also seen the successful commissioning of the new state-of-the-art Wellsford feed mill in Bendigo, on time and on budget. We also completed the acquisition of the NOVACQ production ponds in Thailand, and the remaining 51% of the adjacent feed mill, thereby securing ownership of the production assets for the scaling up of future NOVACQ production. In addition to resetting the organizational structure and completing the major capital works, during the financial year, we also addressed a number of outstanding issues, which resulted in one-off significant items. These included the closure of the underutilized Murray Bridge feed mill, the closure of the Bendigo feed mill and provision for the closure of Mooroopna feed mill all as part of the consolidation into the new Wellsford feed mill. The settlement of a long-standing legal claim and the impairment of the carrying values of the NOVACQ business unit and the Moolap property. In total, the significant items amounted to $43.2 million during the financial year, demonstrating a year of extensive restructuring. Having achieved and brought into account all of this in FY '20, I believe the business is substantially reset and ready to grow. The commission of the Wellsford feed mill completes Ridley's asset renewal program, comprising an investment of $150 million in 4 new facilities over 8 years. The focus now is simple: grow the earnings of the business, generate cash and strengthen the balance sheet. In February 2020, I presented shareholders with the 3 elements of our growth strategy. And I'm pleased to advise that this strategy has been gathering momentum. The early rewards from the implementation of the optimization improvements were evident in our financial results at the 30th of June 2020, and have continued to build on this with the commencement of additional initiatives, which will reduce our operating cost base further. The sales growth emphasis has seen us win business in the first quarter of 2021 financial year, securing increased volumes in the poultry, pig, equine and aquaculture sectors over the same period last year. Concurrently, we are starting to see the early benefits of our expansion, innovation focus with the sale of more customized rendered products for the domestic and export markets. We're also now confident of doubling our production of NOVACQ in FY '21. The Board and management are highly focused on reducing the gearing of the business. As such, we are carefully managing our capital expenditure and are focused on reducing working capital. We expect the combination of these initiatives and the expected growth in earnings will allow us to steadily retire debt in FY '21. We also acknowledge and appreciate that this objective is being accelerated through the suspension of dividends until we consider our gearing level to be more appropriate. By way of a trading performance update, I am pleased to report that Ridley has been able to operate without any suspension of production runs since the start of COVID-19. Whilst a number of our customers were adversely impacted, particularly those heavily exposed to the foodservice sector, generally, our customers have adapted well to the new demand patterns and most appear to have now recovered to pre-COVID-19 volumes. Our earnings performance is tracking ahead of the same period last year, demonstrating both our resilience during COVID-19 and the benefits from the business reset that we've implemented over the past year. As a contingency against the potential disruptions to our supply chains from COVID-19, we went through the financial year through the financial year-end, carrying increased levels of inventory. Having diversified and stress tested our supply chains, we are now confident to reduce the inventory levels on all but a few imported ingredients and have been gradually releasing working capital. We've also contracted the sale of the surface properties at Lara and Moolap. Ridley expects to report an aggregate pretax profit on these sales of approximately $3.8 million in FY '21 with the settlement for Lara, rated completed and for Moolap, scheduled for later this financial year. Moving to the outlook for the business. It remains difficult to predict the degree to which COVID-19 will impact us in the future, both directly or through the effect on the Australian and global economy. In any event, we will continue to manage and mitigate business interruption risks and impacts. The ongoing implementation of the growth strategy is expected to continue to deliver improved earnings in FY '21. Year-to-date trading reflects the benefits of the growth strategy are offsetting the loss of sales from the cessation of drought feeding. And the operating cash generated by the business, together with a focus on decreasing working capital, is expected to result in a steady reduction of the term debt. In closing, I'd like to acknowledge and thank Gary Weiss, who retired in August, for the role he has played as Chair and for his valuable contribution to Ridley over 10 years. I'd also like to thank the Board for their guidance and support over the past year of significant change for Ridley. Also to the leadership team and all the employees, who have responded well to the changes and delivered a strong operating result in FY '20. Finally, to Ridley shareholders, thank you for your support through this transition year and for your patience, whilst we reset the business for growth. Thank you, Chair.

Thank you, Quinton. And on behalf of the Board, let me second all those thanks and acknowledgments that you've just said out. I'll now proceed to the formal business of the meeting. The first item of business relates to the tabling of the company's financial reports for the year ended June 30, 2020, shareholders may ask questions concerning the financial statements of the company. Shareholders are also entitled to ask questions of the company's auditor relating to the conduct of the auditor. The company secretary will now advise the questions received in respect of this item of business.

There are no specific questions received, Chair.

Okay. Thanks, Alan. If there are no questions, I'll proceed with the resolutions to be considered. I now move to consideration of the resolutions, item 2. I now ask members to consider and adopt the remuneration report, as set out on Pages 43 to 53 of the 2020 Ridley annual report. Please note that the vote on this item is advisory only and does not bind the directors or the company. The remuneration report sets out the policy for the remuneration of the directors, the CEO and other designated senior executives and details how their remuneration is structured. It also contains remuneration details for the directors and senior executives for the year ended 30th of June 2020. Noting that each director has a personal interest in their own remuneration from the company as set out in the remuneration report, the directors recommend that shareholders vote in favor of adopting the remuneration report. So if I move the adoption of the remuneration report, the company secretary will now advise of any questions received in respect of this item of business.

There are no specific questions received, Chair, but there's a comment that's been lodged with regard to your recent purchases of shares, whether you would like to comment on that?

Well, generally speaking, I'd like to support the businesses that I'm involved with. And I think that the same things that attracted me to be open to being Chair of Ridley, also making good investment. I think it's a business with a great history. It's an integral part of the Australian economy. It's well exposed to the growth sectors in agriculture and protein production in Australia, and there are growth opportunities, both in our existing geographies and beyond over time. I think a lot of capital has been invested in the business over the last several years, and there's an opportunity to not only leverage that capital and generate the appropriate returns that set the business up for future growth, and I think they're all the reasons why we would want to invest in Ridley, that would be a summary of my reasons for investing. If there are no further questions. We can see the results of the proxies received, et cetera, or the votes received on the screen. We'll now move on to Item 3, the election of myself as a Director, and for this item I'll hand the Chair to our Managing Director, Quinton.

Thanks, Mick. Mick McMahon, being a director, appointed by the Ridley Board outside of an AGM, is required to retire and be appointed to the Ridley Board by its shareholders at the next available Ridley AGM. Mick McMahon, being eligible, has offered himself for election. The company secretary will now advise of questions received in respect of this item of business.

There are no questions received, Chair.

Thank you, Alan. I'll now pass back to Mick to chair the meeting.

Thanks, Quinton. And we'll move on to Item 4, the election of Rhys Jones. Rhys Jones being a director appointed by the Ridley Board outside of an AGM. He's required to retire and be appointed to the Ridley Board by its shareholders at the next available Ridley AGM. Rhys Jones being eligible, has offered himself for election. Company secretary will now advise of any questions received in respect of this item of business. Alan.

There are no questions received in respect of this item, Chair.

Thank you. You can see results of votes received on the screen. We'll now move on to item 5, which is the reelection of Patria Mann. In order to provide stability and continuity on the Ridley Board at a time of significant change in board restructure, the Board requested Patria to stand for reelection at this AGM. Patria, who is required to retire by rotation at this AGM has agreed to offer herself for reelection. Company secretary will now advise the questions received in respect of this item.

There are no questions in respect to this item, Chair.

Thank you. You see the results displayed -- results. Votes received thus far. We'll move on to Item 6, the reelection of Rob van Barneveld. Rob van Barneveld retires by rotation in accordance with the company's constitution and being eligible that has offered himself for reelection. The company secretary will now advise of questions received in respect to this item of business.

There are no questions in respect to this item, Chair.

Thank you. You can see the votes received thus far displayed on the screen. That being the case, we'll move on to Item 7. The issue of shares to the Managing Director. Shareholder approval if sought for the purposes of ASX Listing Rule 10.14 and for all other purposes, the issue of 270,567 ordinary Ridley shares under the company's short-term incentive plan to the company's Managing Director, Quinton Hildebrand. Following the end of the 2020 financial year performance against financial and nonfinancial key performance indicator targets was reviewed. Acknowledging the resilience of the underlying operating performance and restructuring achievements, the Board resolved to award 50% of the 2020 financial year, short-term incentive plan entitlements to participating employees, including the Managing Director. For the first time this year and in order to preserve funds for the retirement of debt, the Board resolved to satisfy the award entirely through the issue of unrestricted Ridley ordinary shares. A detailed summary of the proposed award is provided in the notice of meeting. Company secretary will now advise the questions received in respect of this item of business.

There are no specific questions relating to this item of the business, Chair.

Thank you, Alan. Again, you can see the votes received to date display on the screen. I will move on to Item 8, the issue of performance rights to the Managing Director. The Ridley Corporation Ltd. long-term incentive plan is part of the company's remuneration policy of providing long-term rewards linked to shareholder returns. Subject to the receipt of shareholder approval under this resolution, the Board has resolved to offer the Managing Director, 1,566,108 performance rights. These rights will convert into the equivalent number of fully paid ordinary Ridley shares subject to the achievement of all relevant performance criteria over a 3-year period from the 1st of July 2020 to 30th of June 2023. A detailed summary of the terms and conditions of the proposed offer is provided in the notice of meeting. The company secretary will now advise the questions received in respect of this item of business.

There are no specific questions, Chair.

Okay. Thank you. I'd like to advise that the voting on all resolutions will shortly close. We will take a few moments now to allow you to finish voting. Please complete your voting now, and we'll allow a minute or so for that to occur. [Voting]

Okay. Thank you. We now advise that voting is formally closed. The voting results for all of today's resolutions will be released to the ASX and also made available on the Ridley website after the conclusion of the meeting. The business of the meeting is now completed, and now declare the meeting closed. The company secretary will now advise if there are any questions of the general nature, not related to the business of the meeting, which we may be able to address before we end the broadcast. I am aware of 1 question in respect of our Equine Range. So if I ask Quinton, you can respond to that one.

Thank you, Chair. We've received a question regarding the Barastoc brand. And the question as to how relevance beyond the Equine companion animal sector into racing and breeding sectors. And I can confirm that the Barastoc brand is well-regarded across all the equestrian competition, racing and breeding sectors as well as Equine companion animal. About 2 years ago, Ridley launched the Race N Win brand and the Stablemate brands. And since they launch, they've demonstrated some good success. So I'd just like to refer shareholders to all our question products that cover the full sector, and you can find that on the website, barastochorse.com.au. Thank you, Mick.

Thank you. Alan, are there any other questions received?

There is, Chair. There's observation made with regard to the long-term incentive scheme that the exercise price is considered to be low and might look to be a low hurdle to achieve. You might want to make a comment against that.

Yes. So I might ask David, as Chair of the Agreement Committee to comment on that. But generally speaking, of course, the price reflects the market price of shares at a point in time. And it would be the objective of the Board and the management to deliver value for shareholders over time and improve that share price. But David, do you have any further comment?

Chair, the only additional comment I would offer here is that -- and supporting exactly what you just said, is that the increase in the maximum available incentive to the CEO under the new remuneration structure sees the long-term incentive plan as being the major target for incentivizing the CEO with regard to equity. And if we see it very much aligned his incentives with the long-term objectives and benefits associated with being a shareholder of Ridley. So I think it's totally appropriate that the exercise price fee, the exercise of 1 option equals 1 share at the subject to the achievement of a very aggressive performance targets.